Post‑Enactment COLAs Are Not “Accrued Benefits” Under Article III, § 20(a): Camacho v. Settlement Fund (2025 MP 10)

Introduction

In Camacho v. Settlement Fund, 2025 MP 10 (Nov. 3, 2025), the Supreme Court of the Commonwealth of the Northern Mariana Islands answered a certified question from the U.S. Court of Appeals for the Ninth Circuit. The precise issue was whether section 8334(e) of the Northern Mariana Islands Retirement Fund Act of 1988—which first added a cost-of-living adjustment (COLA) of two percent—conferred a constitutionally protected “accrued benefit” for Class II members who were already employed when the Act took effect, such that the benefit could not be “diminished or impaired” under Article III, section 20(a) of the CNMI Constitution.

The case arises against a long backdrop of legislative adjustments to COLAs, a near-insolvency of the Retirement Fund in 2009, and a 2013 federal settlement that created the Settlement Fund and pegged “Full Benefits” to statutory entitlements as of June 26, 2013 or to constitutionally guaranteed benefits. Appellant Rosa A. Camacho—who entered the Retirement Fund in 1980, before COLAs existed—argued that the 1989 COLA created an accrued benefit protected by the Constitution. The district court rejected her claim, and the Ninth Circuit certified the constitutional question to the CNMI Supreme Court due to the absence of controlling Commonwealth precedent.

The Court’s holding: Section 8334(e) did not create a constitutionally protected accrued COLA benefit for members already employed when the Act took effect. In reaching this result, the Court reaffirmed the foundational principle that benefits in place at the time of entry into the retirement system receive constitutional protection, while later-enacted supplemental adjustments like COLAs do not. It also applied the Commonwealth’s Contract Clause framework from Tano Group v. Department of Public Works to conclude that legislative changes to COLAs did not substantially impair the retirement contract.

Summary of the Opinion

The Court began with Article III, § 20(a), which makes membership in the employee retirement system a contractual relationship and prevents “accrued benefits” from being diminished or impaired. Relying on Cody v. NMI Retirement Fund, the Court reiterated that the benefits in place when an employee begins service are constitutionally protected from reduction. Cody, however, did not decide whether benefits added after entry gain the same protection.

Section 8334(e)’s 1989 addition of a two percent COLA used entitlement language (“shall be entitled”), but the Court held that the Legislature’s history of repeatedly revising, suspending, and ultimately repealing mandatory COLAs showed they were policy choices rather than constitutional guarantees. The Court then applied the Tano three‑factor “substantial impairment” analysis and found no substantial impairment of the retirement contract when COLAs were altered:

COLAs were not a principal inducement to join the system, especially for those who entered before 1989.
COLA changes did not abolish the core obligation to pay the annuity.
COLAs were not central to the bargain; the central undertaking is the guaranteed annuity.

Drawing on analogous decisions from Colorado, Alaska, and Hawai‘i, the Court reinforced that supplemental adjustments like COLAs generally lack the constitutional status of core pension benefits. The certified question was answered in the negative.

Detailed Analysis

I. Constitutional Framework: Article III, § 20(a)

Article III, § 20(a) of the CNMI Constitution codifies two key principles: (1) retirement system membership is a contractual relationship; and (2) accrued benefits may not be diminished or impaired. The provision elevates certain statutory retirement rights to constitutional stature, but only for “accrued benefits.”

The Court explains that the provision’s purpose is to protect the retirement package promised at the time of entry into the system. Cody v. N. Mar. I. Ret. Fund, 2011 MP 16 ¶ 33 (employee rights vest when employment begins). Thus, “accrual” in this context is tethered to entry, not to later legislative generosity. Taisague v. Inos, 2014 MP 13 ¶ 14, further instructs that § 20(a) secures the core pension promise and does not extend to “every fiscal or statutory adjustment.” Applying the plain meaning canon (In re Adoption & Change of Name of Y.M.F.V., 2011 MP 7 ¶ 9), the Court refuses to expand the constitutional text to include supplemental, later-adopted adjustments like COLAs.

II. The Status of COLAs Under Section 8334(e)

The Legislature first introduced a two percent COLA in 1989, years after Camacho entered the system. The statutory words “shall be entitled,” viewed in isolation, could suggest a strong grant. But, crucially, the Legislature repeatedly modified the COLA scheme: redefining eligibility (1991), tying increases to CPI (1993), suspending (2007), and replacing mandatory COLAs with a discretionary regime (2011). Such a shifting landscape indicates policy discretion rather than a permanent, vested entitlement.

The Court’s reasoning mirrors the Colorado Supreme Court’s analysis in Justus v. State, 336 P.3d 202 (Colo. 2014), which read similar entitlement language not to create a perpetual, contractually fixed COLA formula, particularly given repeated statutory changes. The Court also cited Flemming v. Nestor, 363 U.S. 603 (1960), which emphasized that social benefits subject to ongoing legislative revision are generally not vested property rights.

III. Applying the CNMI Contract Clause Test (Tano) to COLA Changes

Even assuming a contractual relationship exists by virtue of membership (Article III, § 20(a)), the Court analyzes legislative changes to COLAs under the Contract Clause framework adopted in Tano Group v. Dep’t of Public Works, 2009 MP 18 ¶ 60 (borrowing the federal test from General Motors Corp. v. Romein, 503 U.S. 181 (1992)):

Is there a contract? Yes—membership creates one.
Was it impaired? Yes—COLA changes altered one aspect of the relationship.
Was the impairment substantial? No.

The “substantial impairment” analysis turns on three considerations (Tano, 2009 MP 18 ¶ 60–66), all of which cut against COLA protection:

Inducement and Reliance: A change is not substantially impairing if the altered term was not a principal inducement or reasonably relied upon. Members who joined before 1989 could not have been induced by COLAs. Even after 1989, the frequent statutory reworking of COLAs made reliance unreasonable—akin to Tano’s conclusion that reliance on a shifting statutory cap was unreasonable (¶ 62).
Modification vs. Elimination of Duty: COLA changes modified supplemental adjustments but did not abolish the core duty to pay the annuity. Under Tano (¶ 63), altering performance terms without eliminating the central obligation is less likely to be substantially impairing.
Centrality to the Bargain: The primary undertaking of the retirement contract is the annuity, as confirmed in Cody. COLAs are supplemental. Repealing or reducing them does not defeat the essence of the bargain (Tano ¶ 65–66).

Because there was no substantial impairment, there is no violation of Article III, § 20(a) arising from COLA changes.

IV. Precedents and Comparative Law

A. CNMI Authorities

Cody v. NMI Retirement Fund, 2011 MP 16: The Court held that benefits in place at entry—there, a disability annuity at two-thirds salary—could not be retroactively reduced for existing members. Cody secures the “core pension promise at entry,” but it did not decide whether later-enacted enhancements become constitutionally protected.
Taisague v. Inos, 2014 MP 13: Emphasizes a narrow reading of Article III, § 20(a), protecting core pension promises without constitutionalizing every fiscal or statutory adjustment.
Tano Group v. Dep’t of Public Works, 2009 MP 18: Adopts the federal Contract Clause framework and articulates the substantial impairment factors—inducement/reliance, modification vs. elimination, and centrality—that anchor this decision’s analysis of COLA changes.
In re Adoption & Change of Name of Y.M.F.V., 2011 MP 7: Restates the plain meaning canon; the Court declines to read into the Constitution protections for supplemental adjustments that the text does not clearly guarantee.

B. Persuasive Authorities

Justus v. State, 336 P.3d 202 (Colo. 2014): “Shall be entitled” language did not create a vested right to a fixed COLA formula where the legislature repeatedly altered COLAs. The CNMI Court echoes this skepticism of perpetual COLA entitlements in a fluid statutory regime.
Flemming v. Nestor, 363 U.S. 603 (1960): Social Security benefits lack vested property status where Congress retains power to alter, amend, or repeal—illustrating a general presumption of legislative flexibility in ongoing social benefit schemes.
Duncan v. Retired Public Employees of Alaska, Inc., 71 P.3d 882 (Alaska 2003): Uses an inducement test: only benefits that served as consideration for public service are protected. Later add-ons do not automatically vest, paralleling CNMI’s emphasis on the entry‑point package.
Everson v. State, 228 P.3d 282 (Haw. 2010): Distinguishes benefits earned for past service (protected) from adjustments tied to future service (subject to legislative change). The CNMI Court analogizes that COLAs had not “accrued” when Camacho’s rights vested and thus fall outside constitutional protection.

V. The Court’s Legal Reasoning, Step by Step

Identify the constitutional promise: Article III, § 20(a) protects “accrued benefits” associated with the contractual relationship of membership.
Define “accrued” with reference to entry: Cody establishes that benefits in place at the time of entry are protected. COLAs did not exist when Camacho entered in 1980.
Assess statutory language and legislative practice: Although § 8334(e) says “shall be entitled,” the Legislature’s repeated post‑1989 alterations mark COLAs as policy tools, not constitutional fixtures.
Apply Tano’s substantial impairment test: For pre‑1989 entrants, COLAs were not an inducement; changes did not abolish the annuity; and COLAs were not central to the bargain. Thus, no substantial impairment occurred.
Confirm with comparative authority: Courts elsewhere, confronting near‑identical clauses, likewise deny constitutional status to adjustable COLA formulas absent clear legislative intent to contract for permanence.

VI. Impact and Future Implications

A. Immediate Case and Settlement Administration

The decision forecloses Camacho’s claim to constitutionally guaranteed COLAs for the period after 2009. For the Settlement Fund—which pays 75% of “Full Benefits” as of June 26, 2013 or those guaranteed by Article III, § 20(a)—the ruling narrows what counts as constitutionally guaranteed benefits. Because post‑1989 COLAs are not constitutionally accrued benefits for pre‑1989 entrants, they do not fall within the Settlement Fund’s “Full Benefits” via the constitutional route.

B. Guidance for Retirees and Employees

Pre‑1989 entrants: COLAs enacted in 1989 are not constitutionally accrued benefits, and adjustments to them do not violate § 20(a).
Post‑1989 entrants: While the certified question addressed only pre‑1989 members, the Court’s reasoning signals that COLAs, as supplemental and frequently adjusted policy tools, are unlikely to be treated as core, accrued benefits even for those who entered after COLAs existed. However, because the holding is formally limited to pre‑1989 entrants, whether a particular post‑1989 COLA provision could ever be shown to be a principal inducement or central to the bargain remains, at least theoretically, an open factual and legal question—albeit against strong headwinds created by this opinion’s analysis.
Core protection remains: The annuity and other benefits that were part of the entry‑point package continue to receive robust constitutional protection against retroactive diminishment, per Cody.

C. Legislative Flexibility and Fiscal Management

The decision preserves legislative flexibility to adjust, suspend, or repeal supplemental cost‑of‑living mechanisms to address fiscal realities. It explicitly avoids constitutionalizing every component of retirement policy, thereby reducing systemic risk to the Commonwealth’s finances while maintaining constitutional protection for the core pension promise.

D. Drafting and Policy Design Lessons

Entitlement language is not dispositive: “Shall be entitled” alone will not constitutionalize a policy benefit in a statutory scheme subject to frequent revision.
Express contractual intent: If the Legislature intends to create immovable rights, it should use explicit language indicating an intent to contract for permanence, recognizing the fiscal implications. Absent such clarity, courts will presume flexibility for supplemental adjustments.
Prospective vs. retrospective changes: Prospective modifications to supplemental benefits are more likely to be sustained, especially where reliance is minimal and the core annuity remains untouched.

E. Beyond COLAs: Other Supplemental Benefits

The reasoning likely extends to other supplemental adjustments (e.g., discretionary health benefits, ad hoc bonuses, or formula tweaks) that are enacted after entry and are regularly modified. Practitioners should evaluate such benefits under Tano’s substantial impairment factors: inducement, elimination vs. adjustment, and centrality to the bargain.

VII. Complex Concepts Simplified

Accrued benefits: Benefits that a worker has earned and that are part of the promised package at the time they entered the retirement system. These cannot be reduced retroactively.
COLA (Cost‑of‑Living Adjustment): An increase to benefits intended to keep pace with inflation. COLAs are often adjusted by legislatures as economic conditions change.
Vested rights: Rights that are fully earned and legally secured. In CNMI retirement law, vesting attaches to the benefits promised at entry—core annuity features—not necessarily to later enhancements.
Contract Clause (Tano) test: A three‑step analysis asking (1) is there a contract, (2) has it been impaired, and (3) is the impairment substantial? “Substantial” turns on inducement/reliance, whether the central obligation was eliminated, and whether the altered term is central to the bargain.
Prospective vs. retroactive changes: Retroactive reductions to accrued benefits are forbidden. Prospective adjustments to supplemental features are generally permissible, especially when the core annuity remains intact.
“Shall be entitled” vs. constitutional guarantee: Statutory entitlement language does not automatically create a constitutionally protected, unalterable benefit—especially where the legislature has a history of changing the benefit.

Conclusion

Camacho v. Settlement Fund clarifies a pivotal boundary in CNMI retirement law: post‑entry COLAs are not “accrued benefits” within the meaning of Article III, § 20(a) for members already employed when COLAs were enacted. The decision reaffirms that constitutional protection attaches to the core benefits present at the time of entry (Cody) and adopts a disciplined Contract Clause approach (Tano) to hold that adjusting or even repealing supplemental COLAs does not substantially impair the contractual retirement relationship. By aligning with persuasive authority from Colorado, Alaska, and Hawai‘i, the Court preserves the core pension promise while maintaining legislative flexibility over ancillary adjustments. The ruling stabilizes expectations for retirees and policymakers alike: the annuity is constitutionally sacrosanct; supplemental COLAs are policy instruments subject to change unless the Legislature unmistakably contracts otherwise.

Case details: Camacho v. Settlement Fund, Supreme Court of the CNMI, 2025 MP 10 (Nov. 3, 2025). Certified question from the U.S. Court of Appeals for the Ninth Circuit (No. 23-16074). Counsel: Jeanne H. Rayphand for Appellant; G. Patrick Civille for Appellee.